Cantor Floman Blog

Social media policies.

The ever increasing use of social media by businesses and their employees is a reality that cannot be ignored. Examples include Facebook, Linked-In, You-Tube, and Twitter. Even if you, the business owner, are not a fan of these social media, the odds are that one or more of your employees uses them; moreover, using social media may be an important way to market your business. Here are some questions to think about.

• What can I do to regulate employees’ personal use of social media sites during business hours?
• What can I do if an employee publishes confidential information about the business on a social media site?
• How can I safely market my business on social media sites?

We can help you prepare a social media policy for your business that strikes an appropriate balance between the potentially competing interests of your employees and the business, and, as well, one that allows you to market safely and effectively on social media sites.

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During employment, many key employees inevitably gain access to a vast amount of information that is both unique and valuable to a business.  This information can include customer lists, potential client lists, processes and operations information, trade secrets, or other important information that has been acquired by the business over time.  For many businesses, it is necessary for key employees to utilize this information to build relationships with current and potential customers and to work with and access this information on a daily basis during employment. 

But what happens when employment ends?  How do you, as a business owner, prevent a key employee from taking this unique and valuable information when he or she leaves your business?  Moreover, how do you prevent a key employee from sharing this information with a competitor employer, or using this information to directly compete with you and your business?

The answer depends largely on whether you are just now hiring the key employee, or whether the key employee is currently employed at your business.  While it is best to speak with an attorney to determine which agreements, it any, are appropriate for your business, here is a brief overview of three frequently recommended documents: 

When hiring new employees, the following three clauses and/or contracts can be preventative solutions to these potential problems.  Depending on your business’s activities and operations, it may be advisable for you to have one or a combination of the following three documents:   

(1)  Non-Compete Clause or Non-Compete Agreement.  Inserting a Non-Compete Clause in a contract for employment or having an employee sign a Non-Compete Agreement (Contract) prevents a key employee form working in your company’s industry or business practice area for a specified time period and within a specified geographic area after he or she leaves employment with your company.  The specified time and geographic limitations must be “reasonable.”  What is “reasonable” varies depending on the industry and business practice area, so it is advisable to consult with an attorney when drafting a Non-Compete Clause or a Non-Compete Agreement. 

(2)  Non –Solicitation Clause or Non-Solicitation Agreement: A Non-Solicitation Clause in a contract for employment, or having an employee sign a Non-Solicitation Agreement (Contract) prevents an exiting employee from soliciting your other employees and/or customers for a period of time after he or she leaves your company.  This helps protect your business interests in retaining employees that you have invested time and resources to train, or customers who your business has developed a relationship with, It does so by prohibiting the exiting employee from attempting to entice other employees or customers to also leave your company. 

(3)  Confidentiality Clause or Confidentiality Agreement: A Confidentiality Clause in a contract for employment, or having an employee sign a Confidentiality Agreement (Contract) prevents a key employee from disclosing sensitive company information, such as customer lists and related information, company processes or operations, or trade secrets or future company strategies. 

When dealing with current employees, the question of whether an employer can require existing employees to sign Non-Compete Agreements or Non-Solicitation Agreements as a condition to continued employment has not been clearly answered by the Connecticut Courts.  It is often required that some form of valid “contractual consideration” be given to the employee in exchange for the employee signing the Non-Compete or Non-Solicitation Agreement. 

In many circumstances, requiring an existing employee to sign a Confidentiality Agreement as a condition to exposing them to confidential information within the office is an acceptable practice.  Again, it is advisable to consult an attorney to determine the legality of these Agreements and Clauses for your specific business in your specific business situation.

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The ever increasing use of social media by businesses and their employees offers businesses vast opportunities and benefits for growth, prosperity, and customer outreach, yet simultaneously exposes businesses to great risks. 

Risks can be presented when an employee uses social media to discuss your business’s activities and operations, your business’s other employees, or even you as an employer.  Risks can also be presented when an employee uses Social Media to discuss clients, potential clients, or current or potential business deals.  Consider the following:  

• Your employee is excited about a new client he or she is working on securing – can they Tweet about the client they might sign?
• Your employee is very upset that your office is not recycling newspapers – can he or she write a blog commenting on how environmentally un-friendly your business is?
• Your employee tweets: “@ServiceSam Crunch time! 1 hour left until big presentation but far from done.  My plan: wing-it and make stuff up as I go!

Your clients who follow Sam may not be too happy to hear your employees “wing-it” during presentations

• Your employee dislikes his or her co-worker or dislikes you as a boss – can he or she express these complaints on his or her Facebook profile?
• Can current employees use social media to recommend the work or employment of former employees?
• Your employee receives a new laptop from a network marketing program he or she participates in.  This program frequently sends the employee freebies and encourages the employee to blog, tweet, or post about the freebies.  Can the employee blog or tweet about this freebie on your business websites or blogs without mentioning that this is an “endorsement,” (as recommended by the FTC)? 

Despite these risks, social media can be an invaluable business and brand building tool if used properly.  A balance between the benefits and risks must be struck to carefully draft a Social Media Policy (or “Social Media Guidelines) that can minimize risks, can harmonize employees’ rights to freedom of speech with businesses’ rights to confidentiality and protection from employees posting about work related issues yet can concurrently preserve the positive uses of social media.  A Social Media Policy cannot impose so many restrictions that it paralyzes employees from communicating with the public and potential customers, or prevents employees from offering responsive customer service to current customers.  In many businesses, employees need access to social media just like they need access to phones and email.

Because the size, activities, and operations of every business are unique, your business’s Social Media Policy should reflect its unique characteristics in a way that optimizes the benefits of Social Media but sufficiently protects against the risks.  Additionally, your Social Media Policy should correspond with any other documents already signed by your employees, such as employment contracts, Non-Disclosure Agreements or Confidentiality Agreements, Internet Usage Policies, or Email Policies.  It is important to consult a knowledgeable attorney to discuss drafting a Social Media Policy that is right for your business. 

To get you started, here are some general topics to take into consideration when drafting a Social Media Policy or Social Media Guidelines:

• Define Social Media: Social Media includes any internet based media created and disseminated through social interaction.  Popular Social Media websites include Facebook, Twitter, MySpace, LinkedIn, and YouTube.  But Social Media doesn’t just end there; Social Media also encompasses personal and corporate blogs, interactive calendars, chats, and the like.
• Ensure that your Social Media Policy compliments and conforms to any existing employment contract, internet usage policy or email policy your business currently uses.
• Ensure that your Social Media Policy encompasses all stages of employment – from pre-employment to departure from employment.
• Consider including ways that encourage positive social media use or “social media training” to optimize employees’ use of social media.
• Inform employees as to the procedure you will follow when reacting to unfavorable social media postings or discussions. 
• Instruct employees that the misuse of social media can be grounds for discipline or termination.
• For some businesses, consider regulating employees’ access and use of only certain social media sites and forums for business related purposes.
• Consider regulating employees’ access and use of social media for business purposes or business and personal purposes during work hours. 
• Consider requiring employees with personal blog sites to post a disclaimer notification that the views expressed on his or her blog are those of the individual and not the business.
• Consider reinforcing the importance of employees submitting complaints to appropriate personnel rather than using social media to express dissatisfaction with the business.
• Instruct employees that they are not to use social media to discuss confidential or proprietary information.
• Instruct employees that they are not to use social media to discuss confidential or identifying information pertaining to clients.
• Instruct employees that they are not to use a business email address to register for social media sites or forums that they will access for purposes other than business.
• Instruct employees that they may not use social media to discuss false information about the business, its employees, customers, or affiliates.
• Instruct employees to use common sense and good judgment when using social media for business and personal purposes.
• Appoint someone within the business as the point of contact for overseeing the policy and answering questions regarding the policy.
• Write the policy/guidelines in plain English!  There is no need to complicate things; make the policy/guidelines easy to read and comprehend.  Use examples, when possible, but emphasize that examples are not comprehensive.  

For new businesses, Social Media Policies or Social Media Guidelines can be incorporated into Internet and Email Usage policies.  For existing companies with current internet and email usage policies, a separate Social Media Policy or separate Social Media Guidelines can be drafted and adopted by the business.

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Many people have the preconceived notion that when incorporating their newly formed business they will derive some benefit from forming their business under Delaware law rather than that of their own state. 

When it comes to incorporating, new business owners seem to think they know something others do not and want in on the mysterious benefits of incorporating in Delaware that only those “in-the-know” are aware of.  The truth is, that although incorporating in Delaware makes sense for large, publicly held corporations, it usually does not for the general partnerships, corporations, and limited liability companies that most business owners are establishing.  This is particularly so, since the smaller, privately held companies will primarily only be doing business in the state in which the owners, members or managers reside.   

A business-owner is not necessarily going to save any money in taxes by incorporating in Delaware.  For small businesses, it is likely your business makes money primarily from operations in the state in which you reside.  Therefore, you will pay your own state’s income taxes on this income.

Furthermore, while it is true that Delaware generally has lower incorporation fees, there are other fees associated with incorporating in Delaware if you don’t actually plan on doing business there.  Businesses must qualify to operate and do business in your state in addition to incorporating in Delaware. This prolongs the process and creates additional costs by having to file papers to operate as a “foreign” corporation in your home state.  Companies incorporated in Delaware and doing business elsewhere must also appoint a corporate agent to receive official notices in Delaware.  Though many companies and services operate as these corporate agents it does add additional cost.  There are also additional expenses each year regarding tax returns and filings.

There are times when incorporation in a state other than your own can make sense.  This is particularly so if you plan to expand rapidly into other states, take the company public or are looking to investors for capital outside of your home state.  In those instances it may be beneficial, and many attorneys or accountants will recommend either Delaware or Nevada. 

The advantages of incorporation in Delaware are that there are: lower incorporation and LLC formation fees; no state corporate income tax for companies operating outside Delaware; no minimum capital required for incorporation; one individual can hold all the corporate offices; shares owned by Delaware non-residents are not subject to Delaware personal income tax or inheritance tax; lower franchise fees; and the names of the initial directors need not appear in the public records.  Delaware also has a greater scope of corporate-themed legal authority should litigation arise involving your business. 

Nevada is another state known to have similar benefits to Delaware, such as: no state tax on corporate profits; stockholders do not have to appear on the public records; there is no state personal income tax; and there are no state franchise taxes.  However, as with Delaware and most other states, companies formed in Nevada will have to pay fees and register in the state(s) in which it is intended that the company operate.  Additionally, filing fees in Nevada are generally higher than in other states. 

The best recommendation for smaller partnerships, limited liability companies or corporations primarily doing business in the state in which the owners, members or managers reside is to incorporate in the same state where the business operations take place; your home state.  If you plan on significant rapid expansion into other states or are looking to find investors that wish to be anonymous it may make sense to look to incorporation outside your home state.

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What is a Buy-Sell Agreement?

A Buy-Sell Agreement (also known as a Buyout Agreement) is a binding contract between two or more owners of a business that sets forth what will happen if one of the owners dies, chooses to leave the business, or is forced to leave the business due to external circumstances.  A Buy-Sell Agreement can be a separate document or can be several legally binding clauses incorporated into an operating agreement or business partnership agreement.  The document, or clauses, set forth what will happen during various contingencies, such as:

• What events will trigger a buyout?  Common events that trigger a buyout include death, disability, retirement, or owner leaving the company willingly or unwillingly).

• Who can buy an exiting owner’s share of the business? Only current partners/shareholders, or outsiders?

• How will business determine the value and buyout price of the exiting business owner’s interest?

When should I enter into a Buy-Sell Agreement?

People usually enter into business ventures with people they like, who they get along with, and who share their long term business goals; no one ever enters into a business agreement intending for things to go sour. 

However, just like a pre-nuptial agreement guides the divorce when marriage ends, a Buy-Sell Agreement guides the buy-out of an exiting partner when the business partnership ends.  Even though the business venture may be entered into with the best of intentions by all partners, it is best to execute a Buy-Sell Agreement at the inception of the business venture.  

Even if you do not foresee a “business divorce” in the future, a Buy-Sell Agreement is an important contract to have because it also acts as a “business will.” 

• If a business partner suddenly dies, could his or her spouse or other family member become a business partner? Would you want to be business partners with his or her spouse or other family member? 

• What if the spouse or family member of the deceased partner does not want to operate the business with you, and demands a payout of the deceased partner’s share?  How should his or her share be valued and paid? 

• What monies, insurance or other funds will be used to pay the deceased partner’s share?

A Buy-Sell Agreement allows you and your business partners to address these questions and others in advance and set forth a plan of action as to how various contingencies will be handled.  If you are currently in business with a partner or partners, and do not have a Buy-Sell Agreement, it is advisable to execute such an Agreement.  

It is advisable to consult an attorney to discuss the various issues that should be addressed in your specific Buy-Sell Agreement to be sure the contract is tailored to your specific business partnership venture.

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Seller/Owner financing.

When a business is sold, it increasingly is common for the Seller to take back what is referred to as “Seller/Owner financing”. This means that part of the purchase price for the business will not be paid in cash at the closing; rather, it will be paid by the Buyer to the Seller over time. In today’s economic climate it often is difficult for a potential Buyer to obtain the amount of Bank financing needed to permit the purchase of the business for the contract price. In those circumstances, there is a strong incentive for the Seller to finance the short fall. If this occurs, it is critically important that the Purchase and Sale Agreement spell out the terms of the financing, the security for the financing, and the remedies in the event of a default.  

Whether you are selling a business or buying a business, we have the experience needed to assure that your interests are protected by the terms of the Purchase and Sale Agreement and at the closing.

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What is a Severance Agreement?

In the absence of a contract that obligates an employer to provide benefits beyond COBRA health coverage to a terminated employee, there is no legal obligation for most employers to do so. Nevertheless, many employers voluntarily choose to offer an employee a severance package upon the termination of the employee’s employment. In order to receive the benefits offered by the employer, the employee will be asked to sign a Severance Agreement, sometimes referred to as a Separation Agreement or a Termination Agreement. Such Agreements typically state that the employee’s acceptance of the benefits provided in the Severance Agreement constitutes a waiver of most claims the employee may have against the employer. The specific terms of a Severance Agreement are very important and should be carefully reviewed by both employer and employee.

Whether you are an employer or an employee, we can prepare and/or review a Severance Agreement that protects your interests.

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The importance of being licensed.

If your business requires licensing by a State agency, treat the requirement seriously. In Connecticut, many trades and professions are licensed through the Department of Consumer Protection.

• A few examples of businesses that require licensing are health clubs, heating and cooling contractors, electricians, home improvement contractors, solar heating contractors, real estate appraisers, real estate brokers, and new home construction contractors; there are many others.
• Connecticut Courts consistently apply the doctrine of “illegality” to prevent an unlicensed business from collecting money owed it pursuant to the terms of a written contract.
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• Connecticut Courts use the same doctrine of “illegality” to prevent the business from recovering the fair value of the work it has performed pursuant to a non-contractual theory of recovery referred to as “quantum meruit”.
• You can obtain additional information about business licensing requirements by visiting the web site of the Department of Consumer Protection at www.ct.gov/dcp. 

If you are in business, contact us so we can help assure that your business has satisfied all licensing requirements.

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Maintain your liability insurance.

An important reason for creating a business entity is to protect the owner from personal liability for claims arising out of the conduct of the business. Although this works in most instances, one area in which the owner continues to have personal liability is for negligent conduct committed by the owner.

• Example 1: Owner is driving the company car on company business and goes through a red light colliding with another car and injuring the other driver. In this example, the owner, because he is the driver, has personal liability for the injuries to the other driver that have been caused by the owner’s negligent driving; this is so even though the owner is driving the car on company business.
• Example 2: An employee is driving the company car on company business and goes through a red light colliding with another car and injuring the other driver. In this example, the owner has no personal liability for the injuries caused by the negligent driving of his employee, because the employee is acting as an agent of the company and not the owner.
• Be sure to maintain insurance sufficient to insure the owner’s potential liability in circumstances in which the owner’s negligent conduct may cause an injury.  

We can help you structure your business entity in a manner that minimizes the circumstances in which the owner may have personal liability arising out of the conduct of the business. 

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Maintain protection for your non-business assets.

An important reason for creating a business entity is to protect the owner’s non-business assets if the business fails. A business owner must be vigilant to assure that protection is maintained.

• Avoid giving a personal guaranty for a business obligation, if possible.
• Be certain that personal assets are not titled in the name of the business entity.
• If you have multiple businesses it often is advisable to have separate business entities for each business. If one business fails, it will not take down the other.
• In giving financial statements for the business, avoid the temptation to include non-business assets on the statement as a way of enhancing the financial profile of the business.

Maintaining the protection of non-business assets requires ongoing vigilance by the business owner. If you have questions about a business transaction and how it may affect your non-business assets, we would be glad to meet with you.

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